With negotiated terms and lower interest rates, most people with a debt management plan pay their debts within three to five years. A debt management plan (DMP) requires consistent monthly payments and usually takes three to five years to complete. During this time, you must agree not to use or accept any additional credit. At the end of your debt management plan, your accounts will be fully liquidated and you will be debt-free.
Weighing the pros and cons of a certain debt solution can help you understand if it would be right for you or not. MoneyNerd offers information services on personal debts, credit agreements, secured loans and capital release. With your consent, MoneyNerd can transfer you to a trusted insolvency specialist if you need debt advice. Deciding if a debt management plan is right for you depends on careful consideration of the pros and cons of your personal circumstances.
If you're having difficulty paying the money you owe, a DMP might be the best option. It ensures that you use the advantages of the lower interest rate and the debt management plan for the intended purpose. A debt management plan is an agreement between you and your creditors (the companies you owe money to) to make a fixed monthly payment. For example, secured debt and student loans are not eligible for debt management plans, and credit counseling agencies can limit the amount of debt you can have to participate in one.
With a debt management plan, you will only make a monthly payment to the credit counseling agency instead of paying directly to your creditors. Debt management plans work best for people who are committed to financial change and plan to honor their part of the agreement. Flexibility is another advantage; once you have initiated a DMP, you can increase your payments at any time if your situation improves or even pay your debt in full if you receive an unexpected gain. However, there are some drawbacks to consider before signing up for a DMP.
Debt management plans can only be used to pay off “unsecured” debts, such as money you owe that has not been secured against your property. This will significantly prolong the time it takes to repay your debt, unless you can increase your payments or settle your debts with a lump sum in the future. Additionally, one or more of your creditors may refuse to participate in a DMP, which means it might not be the best option for you.